Talking trash: Low bidders often lose

Nov. 14, 2013

Updated 5:44 p.m.

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spntrash1.p1004pb.jpg Garbage truck drivers with Solag Disposal and CR&R park their truck along Avd. La Pata outside the South Regional Landfill on 10/3/01. The drivers are not crossing the picket lines outside the landfill so the park them and a supervisor takes the truck across the picket line and into the landfill. Photo: Paul Bersebach / The Register

A Waste Management truck turns around on Rock Wren to collect trash on the other side of the street. The trash bin, third from the right, was left because it had lawn waste in it and another truck picks that material up. ///ADDITIONAL INFO: trash.XXXX - 5/20/09 - ROD VEAL, THE ORANGE COUNTY REGISTER Photographer

spntrash1.p1004pb.jpg Garbage truck drivers with Solag Disposal and CR&R park their truck along Avd. La Pata outside the South Regional Landfill on 10/3/01. The drivers are not crossing the picket lines outside the landfill so the park them and a supervisor takes the truck across the picket line and into the landfill. Photo: Paul Bersebach / The Register

Even with competition, do residents and businesses always get the best possible deal?

We’ve been talking about the $4.5 billion of exclusive trash franchises awarded by local governments in O.C. And how, in most places where the cold winds of competition have been allowed to blow, costs can drop dramatically.

We’ve also mentioned that it’s a heck of a lot easier, from an administrative standpoint, to not dicker with the competitive bidding thing, and to just allow lucrative trash contracts to automatically renew again and again, as half the cities in O.C. still do.

There is, perhaps, no better case study illustrating all of these concepts than the strange experience of little Los Alamitos.

To wit: A competitive contract was awarded to the not-lowest bidder, and residential rates dropped nearly 20 percent (from $14.58 to $11.80). But residents sued, angry that the city did not select the lowest bidder; a judge voided the contract; the city rewrote its policy and reaffirmed that voided contract; and now, the city has rejected the hauler’s rate-hike request, the hauler raised rates anyway, and the two sides glare from opposite sides of an audit, teetering on the brink of legal action.

Nothing like the market to sort things out!

Flash back to 2008, when the Los Alamitos City Council heard residents gripe about how the same hauler had essentially been picking up the city’s trash since it became a city in 1960, and how they may be getting a raw deal because it had never gone out to bid. The city council agreed and enacted an ordinance requiring competitive bidding on future trash contracts.

This, according to residents who sued, is where things went awry and were manipulated to favor the city’s longtime hauler Consolidated/Republic, which had pumped some $32,000 in donations into City Council races.

Athens Services, a family-owned company with 21 waste-hauling contracts in Los Angeles County, said it could do the job for $1.4 million a year – or $15.4 million over a 10-year period, including expected cost increases.

CR&R, one of O.C.’s major players, could do it for $1.6 million a year, or $17.4 million over 10 years.

Rainbow Disposal could do it for $1.8 million a year, or $19.6 million over 10 years.

In the end, the council awarded the contract to the second-highest bidder – longtime hauler Consolidated/Republic – which would do the job for $2 million a year, or $21.9 million over 10 years.

“Over one year Athens was lower than (Consolidated/Republic) by $598,963,” carped the lawsuit filed by residents. “Over the 10-year term of the trash contract Athens was $6,542,612 less expensive for the citizens of Los Alamitos.”

The city’s muddled selection process lacked precision and transparency, the residents’ lawsuit charged, and Los Alamitos violated its own law by not choosing the lowest responsible bidder.

A judge agreed, voiding the contract.

But the judge also acknowledged that all the council had to do was tweak its policies to fix the problem. And in 2012, that’s exactly what it did, voting 3-2 for a new ordinance saying contracts don’t necessarily have to go to the lowest bidder, and that other criteria – including qualifications and “demonstrated competence” – can weigh in the mix.

The council then voted, 3-2, to reaffirm the Consolidated/Republic contract.

The exercise may have been more frustrating for Athens than for the citizens watching. Athens has been trying to break into the O.C. market for years, with no success.

“Athens put in a very competitive bid and could have done a great job, but wasn’t selected,” said Brett Barbre, a political consultant and lobbyist for Athens. “City councils can make the selection for any purpose they like.”

Athens, for the record, also lost out on the city of Orange’s trash contract in 2009 (it quoted the lowest residential price, and was second-lowest for commercial); it lost out on Mission Viejo’s contract in 2010 (it quoted the second-lowest overall cost – $6.9 million a year compared with winner/incumbent USA Waste/Waste Management’s $7.9 million per year).

In Mission Viejo, winner Waste Management was actually the highest of five bidders.

“Athens, CR&R, and WMOC (Waste Management Orange County) all have exceptional experience providing municipal services that are equal to or greater than those sought by the City of Mission Viejo,” a report to the city council said. “WMOC ranked first in this category by virtue of its current, decade-long experience in the City of Mission Viejo.”

Since all this drama transpired in Los Alamitos, new faces have been elected to the City Council. In June, Consolidated/Republic asked the council to approve a rate hike – 2.5 percent for residential service, and 2.7 percent for commercial service.

The council said no. Consolidated/Republic raised rates anyway. And now, as we said earlier, the two sides glare at one another across ledger sheets.

“The City of Los Alamitos is proceeding with an audit of Consolidated Disposal Service/Republic records,” interim City Manager Gregory Korduner told us by email. “If it turns out that the figures presented by CDS to the City Council are unsupported, the City will demand a refund or credit and consider legal action.

“But if the actual figures justify the increase, there’s nothing the City can do,” he wrote. “The increase is small and the trash rates in the City of Los Alamitos remain among the lowest in Orange County based on the structure of the contract.”

We asked Consolidated/Republic to weigh in with its side of the story but didn’t hear back.

There may be a lesson here for everyone.

“What needs to happen is this,” said Art Debolt, former Los Alamitos councilman who led the charge to sue the city. “They need to spell out the qualifications for bidders, get a qualified pool, say ‘Here’s exactly what we want, give us a bid,’ then accept the lowest one. That’s the ideal way to do it. But that makes too much sense and takes political influence out of the equation.”

Los Alamitos Mayor Warren Kusumoto did an interesting thing with data gathered by The Watchdog: He divided the annual cost of each city’s trash service by its population. It’s not a perfect measure – totals include the value of commercial service and well as residential – but he was shocked to find that, even with one of the lowest residential trash rates in O.C., Los Al paid the most per-capita.

“We’re at $188 per person, and in La Palma, which is close in size and population, they’re at $49 per person,” Kusumoto said. “Why such a big gap?”

It’s a question he plans to ask when the trash contract – five years with a five-year renewal option – comes back to the council next year.

“I think the way the contract is constructed, it’s silly, what we’ve asked Republic to do,” Kusumoto said. “Over the life of a five-year contract, we’ve asked them to do $280,000 of philanthropy in the city. How do we audit them on that? And they’re supposed to put up a brick-and-mortar location in the city, so when they buy trash trucks, bins, diesel, whatever, the sales tax is channeled through our city, which would give us $75,000 a year. Part of the audit is, did they do that? Are we getting our money?

“It makes the contract real fuzzy and hard to manage,” Kusumoto said. “I would say, take those things out, lower the total cost, and pass it back to the ratepayers. If they’re in there, make them very specific and measurable and auditable. But I think the first part is, don’t put them in there at all. That’s a hidden tax.”

So, after all this, is competitive bidding worth the headache?

“I think it is,” Kusumoto said. “For single-family-dwelling ratepayers, there’s an advantage. They benefit from lower rates and competition. Where it fell short in my city is, we didn’t look at the overall impact. The second-lowest bid for residential trash hauling was by CR&R – but they were coming in half as much as Consolidated/Republic for a commercial dumpster. It was something like $120 v. $60. I think if the council had gone a step further and considered what was best for local businesses as well as homeowners, it would have been better.”

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